BUYER TIPS

Buying a home is one of the largest investments a person will make in their lifetime.  It also provides you, the homeowner, with a sense of security and pride.  The process of buying a home doesn’t have to make you feel uncomfortable.  Some tips are provided below to make this transition in your life a little easier.

Credit

It is wise to take a look at what your credit looks like before applying for a loan at a lending institution.  There are three major credit reporting agencies and you should contact each of them as each of them might have different credit issues reported to them.  Make sure you are familiar with all the items reported and take necessary steps to clear up anything that looks suspicious or that has a negative effect on your credit.  Even a small reported unpaid balance can adversely affect your ability to obtain a loan for your new home.

No credit is oftentimes worse than having bad credit.  Bad credit can sometimes be cleared up but no credit says that you have not established the ability to repay a loan over time and on time.  It may be wise to try and establish credit with your bank or credit union prior to applying for a loan.  The credit reporting agencies will often require a minimum of one year of good payment history to consider it history.  Applying for a credit card, going to the clothing store and purchasing an outfit, then paying off the card when you get the bill does not establish history.  A simple and inexpensive way to establish good credit for the first time is to obtain a small signature loan at your bank or credit union and immediately redeposit that money back into your savings or checking account.  Use that money to make payments on the loan and spread the payments over a year.  Granted, this loan will cost a little in finance charges but it is a small price to pay for establishing good credit.

Not enough can be said about having good credit.  Even employers do a credit check on new hires.  If you have less than good credit, do what you can to clear it up.  If you have good credit, do what you can to keep it.  If you have no credit, make small steps to obtain good credit and do what you can to keep it that way.

Loan

Now that we have the credit situation under control, the next step in the process is interviewing lending institutions and loan officers to see what they have to offer with their different types of loans, the costs associated with a loan, and to find a loan officer you feel comfortable working with.  Finding a loan officer you feel comfortable working with is very important because you will  call them or meet with them often and you will be relying on their expertise.

There are many types of loans, but the most common are FHA, Conventional, and VA if you have veteran benefits.  FHA loans usually require the least amount of money for a down payment and closing costs but require mortgage insurance which will cost you a little extra every month in your monthly payment.  Conventional loans usually require a little more as a down payment but in return your interest rate is usually a little lower.  It is worthy to note that Adjustable Rate Mortgage Loans, or ARMs, are available as well, but they are not the best option.  These loans start out at a lower interest rate making your initial monthly mortgage payment lower, but the interest rate will continue to increase at intervals throughout the first few years of the loan, which makes your monthly mortgage payment also increase.  If your monthly income does not increase enough to offset the increase in payments then you could find yourself facing financial challenges, even foreclosure.   As a rule of thumb, the more money you put down the lower your interest rate will be, up to a certain point.  Have your loan officer go over all the details with you.

Once you’ve found a loan officer you feel comfortable working with and have determined which type of loan you want to obtain, it is a very good idea to get pre-approved for a loan and to get your good faith estimate.  A good faith estimate is required by law to be given to you buy the lender and it lists your estimated closing costs, the monthly payment, and the interest rate for the loan you are obtaining.  A pre-approval letter is given to you after the lender has pulled your credit, received some information from you regarding your debt and income, and then has determined the maximum amount of loan they will lend you.  Without having this letter you can waste a lot of time looking at properties you can’t get a loan for and you might set yourself up for disappointment when you have to look for less expensive homes that fit your budget.

Start Looking!

Armed with this letter, you can then start looking for a home up to that price range.  Be patient when looking for your home, but be ready to act quickly if you find the right property.  It is not necessary to buy the first home you see.  Many buyers look at dozens of properties before finding the right one.  Once you find the right home, you will then make an offer to purchase the property.  Along with the offer you will write an earnest money check.  The earnest money check shows your intentions and good faith to purchase the property.  This earnest money will be applied towards your closing costs of the property if your offer is accepted.  You will also want to provide a copy of your pre-qualification letter from the lender at this time so show the sellers your ability to obtain the loan to purchase the home.

In the offer you make to the seller, this is your chance to ask for some appliances to stay with the home, or whatever else you choose.  Keep in mind that the sellers have a right to counter offer with a different offer or flat refuse it so be careful what you ask for.  In today’s market it is not unusual for the buyer to ask the seller to pay all or part of their closing cost.  Usually a counter offer will come back from the seller increasing the sales price of the home to cover these costs.  It is a good idea to have your offer contingent upon a professional home inspection to be made within a week to 10 days.  This home inspection will be your responsibility and your cost.  The inspector will go thru the home with a fine tooth comb indicating any potential problems to the home which could cost you money down the road.  It’s just a good idea to know what you’re getting for your money.  You can ask the seller to fix anything on the inspector’s list but they are not required to fix them.  If they choose not to fix them then you are able to terminate the contract and get your earnest money back.